The credit crunch contagion, its impact on shipyards.

Implications: Shipyards had never had it so good than the bonaza they experienced over the past two years. High oil prices drove the offshore rig making market. Replacement of ageing fleets drove the tanker markets. The sizzling economic growth in China create huge demands for tonnages for bulkers and container vessels. Exploitation of gas deposits in the Middle East resulted in record orders for LNG carriers in Korean shipyards. Order books in China, Korea, Japan and Singapore are stretched like they have never been before to 2011 in many cases.  All good things have to come to an end and all it needs is an excuse for equity players to pull the plug. That excuse came in the form of the credit crunch. A few order cancelations in Korea then in China and the herd instincts kick in, many are rushing for the exit. The shipbuilding business is segmented and it would be erroneous to assume that all shipyards will suffer the same fate.

Analysis: The market for shipyards can be segmented by products.  The big segments include tankers, container vessels and bulkers. Then there are smaller segments such as product carriers, coastal vessels, cruise ships, ferries,  These are by and large of standard configuration and their growth is largely predicated by the global economy and the age of the global fleet. The faster the growth of the global economy and the older the age of the global fleet, the higher is the demand for these products. The early boom in shipbuilding was driven by the fact that the global fleet of tankers, bulkers and container vessels were old and many were overdue for replacement. Single hull tankers would be outlawed to protect (as best as can be done) the oceans from oil pollution.

However shipyards do not only build vessels to carry cargos. They also build a variety of other floating structures. This is a niche which some shipyards have made huge strides  in the past decades. While many large yards concentrate on the main stream products, a number have chosen to  diversify into these niches.

The niches which have been particularly lucrative in recent years are those to do with the exploitation of oil and gas. These shipyards have dedicated themselves to building semi submersible rigs, jack ups, production platforms, FPSOs, anchor handling tugs, pipe laying ships and other related vessels.

The demand for their services is still a long way from being satiated. Order books are still very strong and new orders still keep flowing in in spite of the fact that the earliest delivery is thirty six months and new shipyards to meet their demands are being planned or under construction in China, Philippines, Vietnam, India, Qatar, Oman, Brazil and Mexico. 

Fossil fuel will remain the fuel of choice for a number of decades before alternative energy sources become viable commercially.   And so long as this remains so the need for such rigs will remain.

The world fleet for such equipment is still fairly old. The escalating price of oil alters the the landscape. Wells are drilled deeper and in more hostile environments than have been economically possible in the past. This in turn calls for a newer generation of rigs putting more pressure on the supply side.

Under such circumstances there is less reason to cancel orders notwithstanding the credit crunch. Barack Obama if he gets to the White House may impact on the industry but even then his vision of the US freeing itself from dependence on offshore oil is hard to sustain for any length of time.